SPECIAL ISSUE 2014 : FROM AUSTERITY TO STAGNATION HOW TO AVOID THE DEFLATION TRAP

The independent Annual Growth Survey (iAGS) provides, as a counterpoint to the Annual Growth Survey of the European Commission, an independent assessment of the economic situation of the European Union by three European economic institutes: OFCE (Paris), IMK (Düsseldorf) and ECLM (Copenhagen). Despite some positive signs, the iAGS 2014 report argues that the European economic crisis is far from over. The policies conducted so far, in particular fiscal austerity, have failed and European countries still pay the price of this failure. Imbalances have not been solved but only displaced, from current account to unemployment, from public deficit to inequalities and poverty. iAGS 2014 spells out an alternative strategy. First, backloading fiscal consolidation is still an option but this reversal in the stance of fiscal policy also requires the ECB to reduce substantially the sovereign spreads that still exist inside the euro area. Second, it is time to invest in the future. Higher public investment would substantially boost GDP and reduce unemployment. Thirdly, rising poverty and inequalities must be fought. Finally, wage deflation has to be addressed directly. A minimum wage norm across the EU would be a brake to deflation. It would be a powerful tool for re-balancing in the medium term the current account positions in a symmetrical way.